MNI: Fed's Barkin Welcomes Recalibration To Less Restriction
Richmond Fed President says inflation declines appears broad-based, labor market in good shape.
Richmond Fed President Thomas Barkin said Wednesday the battle against inflation has not yet been won but so far the decline appears to be broad-based, while the labor market is in good shape and economic activity remains robust.
"I'm not yet confident nor cynical enough to declare victory," he said in prepared remarks. There is still work to do on inflation, he said, expecting little decline in the 12-month core inflation until 2025, as "we are still lapping low inflation numbers from late last year."
The Fed cut its policy rate by 50 basis points to a range of 4.75% to 5% at its last meeting September 18. "This cut came largely because of the progress we’ve made on inflation" and is a "recalibration to a somewhat less restrictive stance." In the past the FOMC has made such a significant rate cut in response to a troubled economy, Barkin said. "Happily, that is not the case today."
The median member of the FOMC forecasted another 50 basis points in cuts this year, assuming the data come in as expected. "This dial back in restraint just takes a little bit of the edge off," he said. (See: MNI INTERVIEW: Fed Can Cut Gradually If Jobs Stay Strong-Kohn)
ROBUST ECONOMY
"As inflation has moderated, economic activity has remained robust" with second quarter GDP at 3% and consumer spending rising at an annualized rate of 3.1% the last two months, supported by "low unemployment, higher real wages and high valuations," Barkin said in a speech in Wilmington, North Carolina.
"The labor market has remained in good shape as well," he said. "Unemployment has ticked up but remains low at 4.2%, near most estimates of its natural rate. Given how overheated the labor market was just a few years ago, some normalization was to be expected." The hiring rate has dropped down to 2013 levels but also very few employers are planning layoffs, he said.
Consumers are still spending but "increasingly price conscious" and "their choices are pressuring price-setters to finally moderate price increases," he said, taking note of three-month core inflation only slightly above target at 2.1%.
The Richmond Fed chief noted upside and downside risks to inflation, ranging from recent union actions, the conflict in the Middle East, to the potential impact of recent rate moves on pricing for houses and cars. "Buyers will welcome lower rates, but there is a risk that demand is stimulated in excess of available supply," he said.